Energy storage could replace peak gas in our electricity network. That’s the finding of a study that my colleagues and I recently published in the Journal of Applied Energy.

Energy storage is often considered the holy grail of the electricity sector. Tesla’s Powerwall home battery system, for instance, allows households to store energy from solar panels, to be used when the sun isn’t shining. It is seen as a vital piece of the puzzle in a future with more renewable energy.

Storage is great for households, but could also be as important in the wider electricity network. Here’s how it could work.

Volatile prices

Generators or power stations sell their electricity on a wholesale market (in eastern Australia this is the National Electricity Market or NEM). From there it is passed onto households and businesses by retailers at retail prices. The wholesale price is a significant factor in the cost of electricity (other factors include poles and wires).

The wholesale price varies throughout the day - sometimes quite considerably, as you can see in the chart below from Queensland. In times of peak demand, prices can skyrocket to 300-400 times the average price.

Half-hourly wholesale electricity prices in Queensland, at the beginning of this year. The average price for the full 2014-2015 financial year was about $50/MWh.(Author provided, data from AEMO)

This volatility is largely a result of physics: generators have to match demand instantaneously, because electrical energy can’t directly be stored.

People don’t use electricity equally throughout the day. Usually electricity use is concentrated at the end of the day, or on the very hottest day of summer when people fire up their air conditioners.

Electricity networks are typically set up to meet the maximum possible peak demand. They meet this demand with flexible generators such as open cycle gas turbines (which are quick to fire up and shut down, unlike generators such as coal-fired power stations). Such “peak” gas generators are typically used less than 5% of the time.

Load duration curve for the National Electricity Market in the 2008-09 financial year. Curve illustrates the percentage of time that the system is at or above a particular demand level. A large amount of capacity is required for small time periods throughout the year.Author provided, data from AEMO

These rapid variations in energy demand, along with outages of generators or transmission lines and generator bidding behaviour on the market, can result in highly volatile prices. This is where storage can play a role.

Energy can be stored as chemical energy (in the case of batteries), or in other ways such as gravitational potential energy (in the case of pumped hydro), to be used later to generate electricity when convenient.

These electricity storage technologies can also provide peak capacity. In our paper, we found that this was the main value of energy storage. In fact, peak capacity potential may turn out to offer greater value than other options for meeting peak demand.

Surprisingly, we found this value wasn’t affected by energy losses involved in storage (not all energy is recovered when released from storage).

Powering up with storage and renewables

Due to its high flexibility, gas is often considered to be an ideal partner for renewable energy, because it can pick up the slack when the sun isn’t shining or the wind isn’t blowing.

But as the share of renewable energy continues to expand, large-scale electricity storage offers a promising alternative to gas.

In fact, a study by the Australian Energy Market Operator suggested that significant energy storage was crucial to a 100% renewable energy system, in order to minimise costs while maintaining reliability and security standards.

Our research found that storage actually has a competitive advantage over gas when it comes to meeting peak demand. While both can provide peak capacity, storage can also gain extra revenue by taking advantage of smaller price differences that occur on a more frequent (such as daily) basis. When taking this into account, storage may already be cheaper than gas in meeting peak demand. New reports from the US estimate batteries could replace gas in 3-5 years.

Relative costs of providing capacity from an open cycle gas turbine (OCGT) and pumped hydro electric storage (PHES). The right most bar shows the cost of capacity when the revenue from daily arbitrage is taken into account.(Author provided)

Australia’s electricity system is currently oversupplied with capacity to generate electricity – by around 37%. As such, there appears to be no need for new capacity for the foreseeable future.

However, there may be demand for new storage capacity if older generators are withdrawn from the electricity network. Alternatively, the outlook for storage may improve as renewable energy generation is increased to meet mandated targets.

Increasing penetration of variable renewable energy will increase revenues for storage. In times of high generation output there will be more opportunities for storage owners to shop around for lower prices. This fluctuation between prices is already happening in South Australia.